DAILY NATION Tuesday January 28, 2014 investment industry High taxes for construction materials, stamp duty rates and the absence of government incentives are increasingly making it difficult to invest in the sector BY JOSHUA MASINDE jmasinde@ke.nationmedia.com continues being elusive, even as an attempt by property developers to enter the low-cost housing segment targeting the mass market is held back by multiple levies and high cost of financing construction projects. High taxes for construction materials, H THE LOW END OF THE HOUSING MARKET HAS BECOME VERY DIFFICULT TO BREAK INTO Ms Sakina Hassanali, HassConsult head of research stamp duty rates and the absence of government incentives are increasingly making it difficult to invest in property targeting low income earners. This is according to HassConsult’s head of research and marketing, Ms Sakina Hassanali. Besides, there is the high cost of land, which has also discouraged potential investors in the low-end property market. Investors are instead either holding onto new construction for residential houses or continuing to put their money in the high-end property market, which seems to be slowing down, too. Ms Hassanali says this has further made demand for property to slow down in some segments of the sector. This is DEVOLUTION » RAMENYA GIBENDI Investors and leaders fault counties over tax increase THE ENACTMENT of the finance law by county governments has been met with widespread resistance as protests over new levies hit several towns across the country. And with the county authorities desperate to raise revenue to meet development goals, leaders and investors are expressing concerns over increased taxes. “These levies have dampened the entrepre- neurial spirit, undermined public confidence in devolved units and become a nightmare to the business community,” says Meru senator Kiraitu Murungi. The senator has come up with a motion seeking to establish a select committee to review all taxes and rates which are already being levied by county governments. The motion will be debated when the House resumes business next month. Mr Murungi said county governments are misusing the County Finance Act to impose punitive taxes that will hinder investments. Public protests have been witnessed in Bomet, Mombasa, Kiambu, Murang’a and Machakos counties over the new taxes. The Constitution allows counties to adopt revenue collection models which do not hurt national economic policies, economic activities across counties, and movement of goods, services, capital and labour. Already, ICT cabinet secretary Fred Matian’gi has complained over “highway fees” imposed by counties for laying fibre optic cables, a move he said is detrimental to investment. “The trend the world over is that the private sector is encouraged to develop infrastructure, but some counties are levying high fees of up to Sh600 per metre of fibre optic cable,” he said last week in Kisii county. The Kenya Private Sector Alliance (Kepsa) is calling for sobriety among counties regarding taxation. The lobby has urged the devolved units to harmonise their legislation to ease the process of setting up businesses. “Investors look for stability in the taxation regime so that they are able to project return on investments. What we are witnessing is dangerous,” said Kepsa boss Carole Kariuki. She added that county governments should focus on the future by creating an enabling environment for investors to boost development, which is the key aim of devolution. Counties, she said, ought to give assurances to investors and small traders on what to expect even in the face of tax increases. “If I am going to pay Sh300 as parking fee, there should be a guarantee that the car is safe. Similarly, a market fee should mean the area shall be clean and well-maintained,” she said. Last month, Kepsa met Treasury officials and lamented that the counties were not consulting the business community, nor conducting the mandatory Regulatory Impact Assessment, before increasing taxes. smart company 5 SETBACK » INVESTORS NOW PUTTING THEIR MONEY IN HIGH-END PROPERTY MARKET, WHICH IS ALSO SLOWING DOWN Levies hinder building of low-cost houses the release of the annual HassConsult property index. There is also the financing equation, which hits both the developer and the buyer. This means that when the developer gets finance at a price that is high, as is the case currently because of interest rates, they pass on the cost to the buyer. This not only makes the houses very ousing for millions of Kenyans expensive but leads to low demand despite reasonable supply of housing units in a particular market segment, say, the middle income market. Mr Nathan Luesby, Jenga Web manag- FILE | NATION Jenga Web MD Nathan Luesby (left) with the Mortgage Company MD Carol Kariuki (centre) and HassConsult head of research and marketing Sakina Hassanali. because these segments are getting saturated, or are oversupplied, especially the middle to high-end market. “There are a lot of things that inhibit developers from successfully entering that market. Some of these include high taxes, land prices and lack of appropriate low-cost building technology. So you find that the biggest and most dire housing need is in the low-cost housing sector,” she said. This has left the low-end of the market, where demand is highest, in dire need of housing, while at the same time making it a nightmare for investors to break into this market to provide the much-needed affordable housing. It is estimated that more than 200,000 housing units are needed annually in urban areas, with the bulk of these targeting the lower-middle and the low-end of the market. “An area like the low-end of the hous- ing market, where the demand is very high, has now become very difficult for developers to break into,” she said during ing director, contends that the cost of investing has risen due to the high cost of construction and lofty interest rates. Stimulus for credit uptake These have influenced the buying deci- sion, as many potential buyers are now shying away from taking mortgages. They are instead opting to rent, hoping that the cost of loans could decline further to provide a stimulus for credit uptake. Commercial banks are currently still charging 19 per cent on mortgages. “There is still less housing stock com- ing through because of the high cost of construction and high interest rates, which means that, eventually, there won’t be many houses coming onto the market to meet demand,” Mr Luesby said. This trend has also seen many develop- ers opting to have buyers fund their own housing construction rather than bankrolling the projects themselves.